Jackson v Richards

CATCHWORDS : EQUITABLE ASSIGNMENTS - Future property - Plaintiff solicitors assisted defendant client with court proceedings - Claim that solicitors' costs were secured by a charge over prospective proceeds of sale of house - Whether there was an agreement to charge - Whether agreement to keep fund separate - Agreement to charge not made out on the evidence - LEGAL PRACTITIONERS - Particular lien - Claim by solicitors over defendant's share of proceeds of sale of house - Whether proceeds were the fruits of the action - Whether lien attached to so much of the proceeds as reflected the successful resistance to the opposite party's claim - Common law lien distinguished from charge under statute - Held that no lien arose.

Property (Relationships) Act 1984 (NSW) Legal Profession Act 1987 (NSW) LEGISLATION CITED : Solicitors Act 1860 (UK) Legal Practitioners' Act 1898 (NSW) Family Law Act 1975 (Cth)

Jones v Baker (2002) 10 BPR 19,115; [2002] NSWSC 89 Rodick v Gandell (1852) 1 De GM & G 763; 42 ER 749 Swiss Bank Corporation v Lloyds Bank Limited [1982] AC 584 Moseley v Cressey's Co (1865) LR 1 Eq 405 Ex Parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 Rose v Richards [2004] NSWSC 315 Grogan v Orr [2001] NSWCA 114 Shaw v Neale (1858) 6 HLC 581 North v Stewart [1890] AC 452 Read v Dupper (1795) 6 TR 361 Firth v Centrelink (2002) 55 NSWLR 451 Cordery on Solicitors, 8 ed Bole v Horton (1673) Vaugh 360; 124 ER at 1124; CASES CITED : ISPT Nominees Pty Ltd v Chief Commissioner of State Revenue [2003] NSWSC 697 Doyles Construction Lawyers v Harsands Pty Ltd (McClelland CJ in Eq, 24 December 1996 unreported); BC9606389 Roam Australia Pty Ltd v Telstra Corporation Ltd (t/as Telecom Australia) (Federal Court of Australia, Lehane J, 22 September 1997 unreported) Johns v Cassel (1993) FLC 92-364 H S Bird & Co v The Ship "Karu" (1927) 27 SR (NSW) 476 The Paris [1896] P 77 In Re Sullivan v Pearson; ex parte Morrison (1868) L.R. 4 Qb 153 Atkinson, Solicitors' Liens and Charging Orders, 1905 Ross v Buxton (1889) 42 Ch D 190 Skinner v Sweet (1818) 3 Madd 244; 56 ER 499 Halsbury's Laws of England (4 ed Vol 44 para 236) Till v Till [1974] QB 558 Foxon v Gascoigne (1874) LR9 Ch. App 654 Re Allied Glass Manufacturers Ltd (1936) 36 SR (NSW) 409

Peter Alan Jackson & Gregory Hilliard Smith t/as Jackson Smith Solicitors PARTIES : v Garry Noel Richards

Plaintiff: S Kaur-Bains COUNSEL : Defendant: In Person

Plaintiff: Jackson Smith Solicitors SOLICITORS : Defendant: N/A

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4960/04 Peter Alan Jackson & Gregory Hilliard Smith t/as Jackson Smith Solicitors v Garry Noel Richards JUDGMENT 1 HIS HONOUR: The plaintiffs are a firm of solicitors. They acted for the defendant in proceedings in the Supreme Court, No. 5948 of 2001. Those proceedings were brought against the defendant by a Ms Laurie Rose, who had been a de facto partner of the defendant. In those proceedings Ms Rose sought an order pursuant to s 20 of the Property (Relationships) Act 1984 adjusting the interests with respect to the property of the parties to the relationship. 2 The defendant and Ms Rose were the registered proprietors of a property at 9 Gears Avenue, Drummoyne. They also each held a one-third shareholding in two companies called A Creative Cuisine, Sydney Pty Ltd and ACC Catering Australia Pty Ltd. In a judgment delivered on 11 December 2003, Master McLaughlin held that the Drummoyne property should be sold and Ms Rose should receive 60% of the net proceeds of sale. The Master also held that in relation to the shares in A Creative Cuisine Sydney, Pty Ltd, on a winding-up of that company and a distribution of its assets, Ms Rose should be entitled to 60% of the assets to be distributed to her and the defendant, whilst the defendant should be entitled to 40%. 3 These proceedings were commenced on 8 September 2004. The plaintiffs claim that they are entitled to an equitable charge or a lien over the defendant's share of the proceeds of sale to secure the costs payable by the defendant for having acted for him in the Property (Relationships) Act proceedings. The plaintiffs had rendered a bill for $137,914.14. When the proceedings were commenced those costs had not been assessed. On 10 September 2004, Campbell J granted an interlocutory injunction until the hearing of the suit or further order that the defendant be restrained from disbursing any part of the proceeds of sale of the property at 1 Gears Avenue, Drummoyne up to the sum of $137,914.14, except by placing such funds into a controlled interest-bearing account in the joint names of the plaintiffs and the solicitors of the defendant at the time. 4 The plaintiffs' bill of costs has since been assessed. The bill was allowed in the sum of $134,827.62. 5 There were two other proceedings in which the plaintiffs had acted for the defendant. One concerned a claim for costs made by the defendant's previous solicitors and bankruptcy proceedings commenced by them against the defendant in which the plaintiffs were retained. Another concerned a proceeding brought against the defendant by a company claiming payment from the defendant for catering work allegedly done for him. Those bills were also assessed. The assessment in relation to all three bills was given on 10 May 2005. On 27 May 2005 judgment was entered for the plaintiff against the defendant in the sum of $149,137.88. However, it is only the costs in relation to the "Laurie Rose" matter in respect of which security by way of charge or lien is claimed.

Equitable Charge 6 The plaintiffs contended that on 19 April 2003, an oral agreement was made between Mr Jackson and the defendant that the costs payable to the plaintiffs in respect of the Laurie Rose proceedings would be paid from the defendant's share of the proceeds of sale of the Drummoyne property and that the defendant agreed to charge those proceeds of sale, when they came into existence, in favour of the plaintiffs. On that question three issues appear to arise. First, whether an agreement was made as alleged. Secondly, if there were an oral agreement pursuant to which the proceeds of sale of the property were charged in favour of the plaintiffs, whether such an agreement was either a "costs agreement" within the meaning of s 184 of the Legal Profession Act 1987, or a variation of an existing "costs agreement" and if so, whether it was void for not being in writing, or evidenced in writing. Thirdly, whether the agreement was unenforceable on the basis that there was a presumption, which had not been rebutted, that it was entered into under undue influence, (see Jones v Baker (2002) 10 BPR 19,115; [2002] NSWSC 89 at [81], [87]). 7 I have concluded that the plaintiffs have not shown that an agreement was made, whose effect was to create a charge over the proceeds of sale. It has thus not been necessary to determine the second and third issues. 8 The proceedings brought by Ms Rose against the defendant for orders under the Property (Relationships) Act were commenced in 2001. Until April 2003, the defendant either appeared for himself or was represented by another solicitor. On 3 December 2002, the plaintiffs agreed to provide the defendant with general legal advice in relation to the proceedings, although not to "go on the court record" as the defendant's solicitors. On 3 December 2002, the plaintiffs sent a "client service agreement" to the defendant setting out the basis upon which they would act and the costs which they would charge. 9 On 26 March 2003, the Property (Relationships) Act proceedings were set down for hearing on 19 May 2003, with an estimated hearing time of two days. On 16 April 2003, the defendant asked Mr Jackson to act for him in the conduct of those proceedings. Mr Jackson's file note of the conference with the defendant on 16 April 2003 reads as follows: " Attended Gary Richards in conference. I discussed with him the costs of running his action. I said the solicitor's costs would be about $15,000. I said that this was made up of two days at about $2,500 each day, plus four days preparation. I said that the barrister would be about $9,000. I said this was $1,500 for two days of the hearing and four days preparation. I asked him how he would deal with this in the event that the action did not succeed or if it did not succeed as well as he thought and he was left with paying the bulk of it. He said if he had to he would not worry about selling the house. He said to me that he had already resigned himself to the idea that he may have to sell the house. I said that I hoped that it would not come to this. " 10 Mr Jackson deposed that during the meeting with the defendant, words to the following effect were said by him and the defendant: " Jackson: '… I have to ask you how you will pay our costs. If you win and receive money I assume you will agree to pay us from any verdict or settlement moneys. What I really need to know from you is what you will do about paying our costs if you do not receive enough money from a settlement or verdict if you lost?' Richards: 'I have only a small amount of money that I could use now. You will get paid from my share of the property settlement. I have come to accept that the house may have to be sold to pay my costs.' Jackson: 'I hope it won't come to that but on the basis that our account will get paid, we will act for you in these proceedings.' " 11 The plaintiffs rely upon this conversation as an agreement to charge the proceeds of sale of the property with the debt which the defendant owes to the plaintiffs for costs. 12 The defendant denied that he made any agreement to secure the costs against the proceeds of sale of the house. Under cross-examination he said that there was never any discussion about how Jackson Smith's legal costs were going to be paid. However, the defendant was not a reliable witness. His evidence was often prolix, confused and unresponsive, and I was not always sure that he was capable of grasping precisely what he was being asked. He said that the amounts mentioned were small and there were no discussions about how Jackson Smith's legal costs would be paid which "scared him" financially. It is clear, however, from the correspondence between the parties that there was an agreement in relation to the payment of Jackson Smith's costs. On 29 April 2003, Mr Jackson wrote to the defendant. In the letter he said: " I note your early advice that you have a small amount of money that you are able to give to us. The balance of our fees are to be paid from any success you have your de facto matter (sic) or if that fails, over the next few months of the sale of your home. I note that you have said to me that you have accepted the possibility that you may have to sell your home. "

Later correspondence from Mr Richards acknowledged that there was an agreement in relation to costs, but did not identify its terms. 13 Whilst I regard Mr Jackson as being a much more reliable witness than the defendant, it does not follow that I should conclude from Mr Jackson's evidence of what was said at the meeting of 16 April 2003, that the parties reached an agreement whose effect was to charge the defendant's interest in the proceeds of sale of the Drummoyne property with the amount of his debt to the plaintiffs. First, Mr Jackson does not purport to recall the precise words which were used. In his affidavit he was seeking to recall what was said more than two years previously. I consider that his file note and his correspondence of 29 April give a sounder indication of what was discussed at the meeting of 16 April. In his affidavit, Mr Jackson said that his purpose in drafting the file note of 16 April was to record the estimates of costs which he had given to the client and to record that "Garry Richards would sell the house to pay our fees in the event that he did not succeed or if he did not succeed as well as he thought and was left with paying the bulk of the costs." 14 That evidence, together with the file note and the letter of 29 April, indicates to me that Mr Jackson and the defendant agreed that the defendant would sell the Drummoyne property, if necessary, to put the defendant in funds to pay the fees payable to the plaintiffs. There is no reference in the file note of 16 April to the defendant paying the fees "from my share of the property settlement". 15 In any event, the conversation as deposed to by Mr Jackson referred to costs being paid from the proceeds of a property settlement. That seems to be a reference to a settlement sum that might become payable to the defendant if he won, not to payment out of his share of the proceeds of sale of the house if he lost and the house had to be sold. 16 In the letter of 29 April, Mr Jackson refers to fees being paid within two or three months of the sale of the house. I read that letter as meaning that the fees would be paid two or three months after the house was sold, not that the house would be sold within two or three months of the date of the letter and the fees paid out of the proceeds of sale. 17 The critical question is whether it should be inferred that the parties intended that if the Drummoyne property were to be sold, the defendant's share of the proceeds of sale were to be kept separate from his other assets, and the costs paid from that separate fund. 18 An agreement between a debtor and his creditor that the debt owing shall be paid out of a specific fund coming to the debtor will create a valid equitable charge upon the fund and operate as an equitable assignment of it. (Rodick v Gandell (1852) 1 De GM & G 763 at 777, 778; 42 ER 749 at 754). However, for this principle to apply, there must be a specific fund from which the debt owing is to be paid. In Swiss Bank Corporation v Lloyds Bank Limited [1982] AC 584, Buckley LJ said (at 595): " If the debtor undertakes to segregate a particular fund or asset and to pay the debt out of that fund or asset, the inference may be drawn, in the absence of any contra indication, that the parties' intention is that the creditor should have such a proprietary interest in the segregated fund or asset as will enable him to realise out of it the amount owed to him by the debtor. " 19 For such a charge to be created by an agreement to pay a debt out of a fund to come to the debtor, the parties must have agreed that the debtor would keep the fund separate from his other assets. (Moseley v Cressey's Co (1865) LR 1 Eq 405 at 409). 20 There was no express agreement between the parties that if the Drummoyne property were sold, the defendant would keep his share of the proceeds of sale in a separate account which would be applied to meet his debt for costs. If the parties intended or assumed that the defendant could add his share of the proceeds of sale to his other assets, by, for example, crediting them to his existing bank account, or that he could use them to reduce any overdraft to the bank, or to discharge other debts, any such intention or assumption would be inconsistent with the plaintiffs having a charge over the proceeds. Very slight differences of language could produce different legal outcomes. If the defendant said, "I will pay your costs out of the proceeds of sale", that might imply that the proceeds of sale would be kept separate and the debt would be paid from the separate fund. On the other hand, if the defendant said "I will pay your costs when I receive the proceeds of sale", no such implication could be drawn. 21 I have no doubt that Mr Jackson was a truthful witness. However, considering his evidence as whole, including his contemporaneous correspondence and file note, his affidavit evidence as to his purpose in preparing the file note, his oral evidence that his file note summarised the matters of importance which were discussed, and taking into account that his affidavit was prepared more than two years after the conversation in question, that he did not profess a precise recollection of the words used, and that his affidavit did not in terms refer to the costs being paid out of the proceeds of sale of the Drummoyne property, I am not satisfied that there was an agreement that if the Drummoyne property had to be sold, the defendant's share of the proceeds of sale would be kept separate and used so far as necessary to pay the plaintiff's costs. Rather, the parties contemplated that if the defendant were not successful in the litigation and the property had to be sold, the defendant would then be in a position to pay the plaintiff's costs as a result of his assets being augmented by the proceeds of sale. Whether that contemplation proved to be accurate would depend upon the amount of the debt, the extent of the defendant's other debts, and his other assets. For these reasons, I do not accept that the plaintiffs are entitled to a charge over the defendant's share of the proceeds of sale of the Drummoyne property. "Fruits of the Litigation" Lien 22 The basis upon which, at common law, a solicitor is entitled to recover his costs and disbursements from money recovered for a client was authoritatively stated by Jordan CJ in Ex Parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 (at 100) as follows: " A solicitor has no lien for his costs over any property which has not come into his possession. If, however, as the result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor acquires no common law title to his client's right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, which is analogous to the right which would be created by an equitable assignment of a corresponding part of the money by the client to the solicitor. That is to say, the solicitor has an equitable right to be paid his costs out of the money; and if he gives notice of his right to the person who is liable to pay it, only the solicitor and not the client can give a good discharge to that person for an amount of the money equivalent to the solicitor's costs. … " 23 Although Sir Frederick Jordan deprecated this right being described as a lien, that description is sanctioned by long usage (Firth v Centrelink (2002) 55 NSWLR 451 at 467). The lien is called a particular lien, to distinguish it from a general or retaining lien where the solicitor has possession of his client's property obtained in the course of acting as the client's solicitor. 24 The plaintiffs claim to be entitled to a "fruits of the action" lien in respect of the defendant's share of the proceeds of sale of the Drummoyne property, from which they claim to be entitled to payment of their costs. It is necessary to return to the facts in a little more detail. 25 The defendant and Ms Rose owned the Drummoyne property as tenants in common in equal shares. In the Property (Relationships) Act proceedings, Ms Rose sought orders for the sale of the Drummoyne property. She sought orders that 65% of the net proceeds of sale of the property be paid to her, that there next be paid from the net proceeds such amount as was necessary to discharge a loan from her mother for the payment of the mortgage over the property, and the balance be paid to the defendant. She claimed that her mother paid $3,122.40 to Westpac Banking Corporation on account of three months' of mortgage arrears. 26 The defendant resisted the order for sale of the Drummoyne property. He sought orders that he pay Ms Rose 35% of the value of the Drummoyne residence, and she be ordered to transfer her interest in the property to him. 27 Ms Rose sought orders that the business of A Creative Cuisine, Sydney Pty Ltd be sold and that it and ACC Catering Australia Pty Ltd be wound up. She did not seek any orders varying the parties' entitlements as shareholders to participate in the return of assets on the winding-up. 28 There were three shares in A Creative Cuisine, Sydney Pty Ltd. One was held by Ms Rose, one by the defendant, and one by a Mr Clark. The defendant proposed orders that he transfer his shares to the plaintiff and that he be paid a sum of money in lieu of dividends and other benefits of which he claimed he was deprived and which he claimed he ought to have derived from the company. He also sought an order that he be paid a sum of money which the plaintiff withdrew from a bank account, which, the Master inferred, was a bank account held on behalf of the company. 29 The May 2003 hearing date was vacated. The matter was heard in November and December 2003. The Master recorded that during closing addresses the plaintiff had abandoned her claim that part of the net proceeds of sale of the Drummoyne property be applied to discharge the alleged loan from her mother applied towards payment of the mortgage. He found that the contributions of the parties to the Drummoyne property should be recognised by the plaintiff having an interest therein of 60%, whilst the defendant should have an interest therein of 40%. (Rose v Richards [2004] NSWSC 315 at [60]). He found that if the parties could not agree upon a valuation of the property then orders would need to be made for its sale. The plaintiff upon sale would be entitled to 60% of the net proceeds and the defendant to 40%. In relation to the affairs of the two companies, the Master found that the plaintiff should be entitled to 60% of the assets to which the parties should together become entitled on a distribution on a winding-up, whilst the defendant should be entitled to 40%. The Master did not make the orders which the defendant sought claiming a payment in respect of benefits of which he was allegedly deprived and payments referable to the withdrawal of moneys from the company's bank account. The Master found that such transactions would be brought into account upon the liquidation of the companies and be reflected in the ultimate disposition of any assets among the shareholders. He ordered that the defendant pay two-thirds of Ms Rose's costs. 30 Final orders were not made until 19 August 2004. By that time the plaintiffs had ceased to act for the defendant. The orders included orders that the parties do all that was necessary to cause the Drummoyne property to be sold. The property was sold. The net proceeds of sale totalled $497,911.27. $298,746.76 was paid to Ms Rose. $199,157.31 was paid to the defendant, although, pursuant to the orders made by Campbell J on 10 September 2004, $137,914.14 of the proceeds was paid into a controlled interest-bearing account in the joint names of the defendant and a firm of solicitors. 31 Initially, the plaintiffs submitted that they were entitled to a lien which secured an amount representing the benefit derived by the defendant from the defence of Ms Rose's claim, being an amount representing 5% of the proceeds of sale of the Drummoyne property, plus $3,122.40. This calculation was based on Ms Rose's claiming 65% interest in the proceeds of sale plus a direction that $3,122.40 of the proceeds of sale be applied to discharge the debt allegedly owed to her mother. Five per cent of the net proceeds of sale was $24,894.66. Thus the plaintiffs initially claimed to be entitled to security by way of lien over the sum of $28,017.06, representing the extent to which the defendant successfully resisted Ms Rose's claim. 32 Ultimately, the plaintiffs submitted that all of the defendant's share of the net proceeds of sale was property over which they were entitled to assert a lien for their proper costs and disbursements. For this submission the plaintiffs relied upon the judgment of Sheller JA, with whom Meagher JA agreed, in Grogan v Orr [2001] NSWCA 114 at [62]. 33 If the defendant had succeeded in the Property (Relationships) Act proceeding he would have obtained an order that Ms Rose transfer her share of the Drummoyne property to him upon payment of a sum of money against which the defendant might have been entitled to set off amounts which he otherwise claimed from her relating to her dealings with the companies. Had he been successful, the Drummoyne property would not have been sold. There would have been no fund in respect of which the plaintiffs would be entitled to a lien. The plaintiffs would not have been entitled to a lien over Ms Rose's interest in the Drummoyne property which, if the defendant had succeeded, would have been transferred to him. (Shaw v Neale (1858) 6 HL Cas 581 at 589, 592, 601-602; 10 ER 1422 at 1426, 1427, 1431). It was there held that a solicitor was not entitled to a lien over an estate which the client recovered through the efforts of the solicitor. Most of the argument in Shaw v Neale concerned priorities between charges which two solicitors had obtained from their hapless client, whose estate had been recovered through the efforts of one of them. It was submitted that a solicitor had a lien on an estate recovered for the amount of his costs expended in its recovery, just as he would have been entitled to a lien on a fund in court. The submission was somewhat peremptorily rejected during argument, Lord Wensleydale and Lord St Leonards saying they had never heard of such a proposition at law or in equity. (6 HL Cas at 588-589, 592; 10 ER at 1426, 1427). The reasons given by Lord Chelmsford LC for rejecting the claim were not very satisfactory. His Lordship denied that there could be any lien upon property unless it is in the possession of the party who claimed the lien. As the solicitor was not in possession of the estate, he was not entitled to a lien upon it. (6 HL Cas at 601-602; 10 ER at 1431). However, whatever might be said about this reasoning, the decision settled the law on the point. 34 In Savage v James (1875) 9 IR Eq 357, the Vice-Chancellor in Ireland rejected a claim that a solicitor was entitled to a lien over silverware recovered by compromise of a suit, saying (at 359): " There is no question that, if there had been a money fund realised in this suit, he would have had a lien upon it for his costs incurred in realising it, always assuming - as he is at liberty to assume for the purposes of the motion - that there is any sum due to him; but I am at a loss to see how the principle applies to property not in Court, nor proposed to be brought under its control. Except in the case of a fund in Court there can be no lien, for in other cases lien must be coupled with possession. " 35 In response to Shaw v Neale, there was introduced in the United Kingdom s 28 of the Solicitors Act 1860, 23 and 24 Vic C.127. (North v Stewart [1890] AC 452 at 457). That section provided that in every case in which an attorney or solicitor should be employed to prosecute or defend any suit, matter or proceeding, the court could declare such attorney or solicitor to be entitled to a charge upon the property recovered or preserved, and upon such a declaration being made such attorney or solicitor should have a charge upon and against and a right to payment out of the property, of whatsoever nature, tenure, or kind the same might be, which should have been recovered or preserved through the instrumentality of any such attorney or solicitor, for the taxed costs, charges and expenses of or in reference to such suit, matter or proceeding. 36 In 1932, this section was replaced by Act 22 & 23 George V c 37, s 69 which altered the form of the previous s 28, but not its substance. In 1935, the Legal Practitioners' Act 1898 (NSW) was amended and a new s 39A, based on the English s 69, was inserted, which read in part: " (1) Any court in which a solicitor has been employed to prosecute or defend any action, suit, matter or proceeding, may at any time by order declare the solicitor entitled to a charge on the property recovered or preserved through his instrumentality for his taxed costs in reference to that action… " 37 That Act was repealed by the Legal Profession Act 1987, s 214 and Schedule 1. Section 39A of the Legal Practitioners Act 1898 was not re-enacted. In the Minister's Second Reading Speech on the Legal Profession Bill the Minister said: " The second departure from the existing legislation relates to charging orders. Provision exists for any court, in which a solicitor has appeared in an action on behalf of a client, to declare that the solicitor is entitled to a charge on property recovered or preserved for the client as a result of that action, pending recovery by the solicitor of his costs. This provision has been deleted from the bill because of the unnecessary burden it places on clients who find their properties subjected to such an order, particularly considering the normally small amount claimed by the solicitor relative to the whole of the property due to the client. " 38 The repeal of s 39A of the Legal Practitioners Act 1898 did not affect the rights which a solicitor has for security for his costs and expenses at common law or equity. However, it is important to distinguish authorities which were based upon the statutory right to a charging order for property recovered or preserved through the instrumentality of the solicitor, from the authorities dealing with a solicitor's "lien". 39 There were numerous differences between the statutory right to obtain a charging order and the common law "fruits of litigation" lien. (See Atkinson, Solicitors' Liens and Charging Orders, 1905, page 9). Three features about the statute to be noted are that the statute referred to property of any kind, thus dealing with the situation revealed in Shaw v Neale; the statutory charge only came into existence upon its being declared by a judge, whereas the "lien" arises automatically; and the statute covered property "recovered or preserved". 40 The reason the lien exists was explained by Lord Kenyon ChJ in Read v Dupper (1795) 6 TR 361 at 362; 101 ER 595 at 596; "… that the parties should not run away with the fruits of the cause without satisfying the legal demands of his attorney, by whose industry, and in many instances at whose expense, those fruits are obtained ." 41 It would be paradoxical if the plaintiffs, because they were unsuccessful in acting for the defendant in resisting Ms Rose's demands that the property be sold, were entitled to a lien to secure their proper costs, when they would not be so entitled had their efforts for their client succeeded. A claim which produces this outcome, to the potential detriment of the other creditors of the defendant, should be examined carefully. 42 As explained by Jordan CJ in Ex Parte Patience; Makinson v The Minister the solicitor's right arises where "the client obtains a judgment or award or a compromise for the payment of money". In other words, the litigation must bear fruit. I do not think it can be said in this case that the client, that is the defendant, obtained an order for the payment of money. The order directing the sale of the property was not obtained by him. It was obtained by Ms Rose over his resistance. 43 The plaintiffs submitted that it was through their efforts that part of the defendant's interest in the subject property was preserved, and this resulted in his receipt of money. They relied upon the decision of the Court of Appeal in Grogan v Orr [2001] NSWCA 114 as authority that all of the defendant's share of the proceeds of sale was property to which the "lien" attached. 44 In Grogan v Orr, the respondent, Mr Orr, had acted for a husband in proceedings in the Family Court against his wife. It appears that the parties owned four parcels of land, one of which was a farm at Tyagarah, near Byron Bay. The client had a 60% beneficial interest in that property. The other 40% was beneficially owned by members of his family and the children of the marriage. The Family Court declared that as between the client husband and the wife, the client husband was absolutely entitled to the whole of the 60% of the net proceeds of sale of the Tyagarah property. It also ordered the wife to pay to the client by way of property settlement the sum of $64,000 and interest. It does not appear from the judgment, which party had sought an order for the sale of the farm. Powell JA concluded from the reasons of Moss J in the Family Court that the wife made no claim to have the client's interest in the farm brought to account and apportioned in her favour, but only a claim to retain the former matrimonial home and certain items of personal property. Dealing with the claim for a lien, his Honour applied a statement in Cordery on Solicitors, 8 ed at p 250 that: " A solicitor has at common law a 'lien' over property recovered or preserved or the proceeds of any judgment obtained by his work on his client's behalf for the costs incurred thereby which have been authorised by his retainer. "

Powell JA concluded that it could not be said that the client's interest in the Tyagarah property had been recovered or preserved by the efforts of the solicitor, still less that the proceeds of the sale of the property had been obtained by the solicitor's efforts on the client's behalf (at [79]). 45 However, on this point, his Honour dissented. Sheller JA, with whom Meagher JA agreed, said: " 62 Section 79 of the Family Law Act enables the Family Court to alter the interests of the parties to a marriage in the property of either of them. To do this the court may, as in the present case, make an order for a settlement of property in substitution for any interest in the property. In that sense, the whole of the parties' property is under consideration and the orders the court makes are the fruits of the cause produced by the industry of the solicitor. In the client's case those fruits were partly the proceeds of sale of the Tyagarah property. I respectfully agree with what Hodgson J said.

63 I am of the opinion that the client's share in the proceeds of sale would be correctly characterised as the fruits of the orders made by the Family Court. Accordingly, the respondent could be treated as possessing an equitable right in them if timely notice of that right had been given to the appellants." 46 The actual decision in Grogan v Orr on this point, was that the respondent failed because he did not give notice of his claim to an equitable interest in the funds by way of particular lien to the appellants (at [69]-[70]). 47 It is clear from paragraph 62 of the judgment of Sheller JA, which I have quoted, that the Court accepted that for a solicitor to be entitled to a lien over the fruits of litigation, those fruits must be "produced by the industry of the solicitor". This is not an exacting standard. It is not necessary to demonstrate that a judgment or settlement came about as a result of specific efforts by the solicitor, but there must be some causal link between the solicitor having acted for the client in the proceedings and the resulting payment to the client. (Doyles Construction Lawyers v Harsands Pty Ltd (McClelland CJ in Eq, 24 December 1996 unreported); BC9606389 at 4; Roam Australia Pty Ltd v Telstra Corporation Ltd (t/as Telecom Australia) (Federal Court of Australia, Lehane J, 22 September 1997 unreported) (at 4-5); Firth v Centrelink at 463-464). 48 This requirement is illustrated by the decision in Ex Parte Patience; Makinson v The Minister. The litigation in respect of which the lien was claimed was a claim for compensation made in the Land and Valuation Court following the resumption of the client's land. The Crown had offered £50 as the value of the land. The client sought compensation in the sum of £7,045. Costs of approximately £644 were incurred in the litigation. Judgment for £250 was awarded. It was held that the solicitor had an equitable right to be paid his costs out of £200 of the total verdict of £250. That was all that the solicitor claimed, but there is no suggestion in the judgment that he would have been entitled to more. On the other hand, the solicitor was not deprived of his lien because the client was worse off for the litigation, having incurred more in costs than he recovered in a verdict. 49 In Grogan v Orr the Court of Appeal followed an earlier decision of Hodgson J (as his Honour then was), in Johns v Cassel (1993) FLC 92-364. There the solicitor's client had obtained an order in Family Court proceedings entitling her to 74% of the proceeds of sale of a matrimonial property which had been in the joint names of the parties. It appears from the reasons of his Honour that the lien was sought in relation to the entire 74% of the net proceeds of sale of the property. Hodgson J held that the property over which the solicitor claimed a lien was in substance a sum of money and the circumstance that the sum would only be realised on completion of a contract of sale did not prevent the jurisdiction of the court from arising. 50 Neither of these cases decides that a solicitor is entitled to a lien over a fund brought into existence as a result of an order for sale of property, where the order was not obtained by the client, but was obtained by the opposite party, against the client's resistance. The opinion of the majority of the Court of Appeal in Grogan v Orr was that the orders which the Family Court made were the fruits of the cause produced by the industry of the solicitor, and that those orders produced the proceeds of sale of the property. That was a finding of fact. The only point of law decided was that, as Hodgson J held in Jones v Cassel, an order for sale of property, and the fund arising therefrom, can be the fruits of litigation which can provide security for a solicitor whose industry has produced them. 51 The conclusion of Sheller JA in Grogan v Orr that in matters under s 79 of the Family Law Act, the whole of the parties' property is "under consideration" must be, I think, a statement applied to the particular facts of that case, rather than a statement of law applicable to all claims under s 79 of the Family Law Act or s 20 of the Property (Relationships) Act. The fact that the court has power to make orders to adjust the whole of a party's property is irrelevant unless one or other of the parties invokes the power by asking the court to determine its rights by reference to all of the parties' property. It cannot be the case that if, as in the present case, a party to a relationship makes a particular claim to a share of the client's property, so that the balance of the client's property is never at risk, the client's retention of property that was not the subject of a claim could be said to be due to the industry of the solicitor. 52 In the circumstances of this case, it is impossible to say that the whole of the defendant's share of the proceeds of sale were the fruit of the litigation which he received as a result of his solicitor's efforts. For the reasons in para 31, his success in resisting Ms Rose's claim was limited to the sum of $28,017.06. Nor did Ms Rose make a claim in respect of any other part of his property, so that it might be said that the whole of his interest in the Drummoyne property was "under consideration", in the sense that it might be liable to be applied to meet Ms Rose's claims either against that property or against other property of the defendant. Nor was the order obtained by him or for his benefit. The order for sale of the property could not properly be described as a "fruit of the litigation". 53 It may be said however, that the defendant's retention of $28,017.06 was the result of the plaintiffs' industry. The defendant denied this was so. He claimed that the plaintiffs had not carried out their retainer with due skill and competence and that they had failed properly to advance claims which he wished to make against Ms Rose or the companies. He complained that the solicitors had failed to lodge a cross-claim in the Property (Relationships) Act proceedings and that through their negligence he had been precluded from relying upon important evidence which had been filed late. None of his complaints was made good. He did not show that the decision not to file a cross-claim was other than a proper one. As the Master's reasons show, the defendant was able, without filing a cross-claim, to advance what he claimed were the appropriate orders which should be made. It was not shown that the late service of affidavit evidence was due to the fault of the plaintiffs, nor that the case might have been decided differently had the evidence been filed promptly and been relied upon. The case which he wanted to advance before the Master was that there had been improper dealings with the companies' property. Such a claim was advanced before the Master, but the Master found that any such claims would have to be resolved on a later occasion such that they would be reflected in what would ultimately be returned to the shareholders on a winding-up of the companies. I am satisfied that there is a sufficient causal connection between the successful resistance by the defendant of part of Ms Rose's claim and the efforts of the plaintiffs. 54 The question is whether that is sufficient to support a "fruits of the litigation" lien over $28,017.06 from the proceeds of sale and interest which has accrued on that sum. As I have previously said, I do not consider that the order for sale of the property can be regarded as a fruit of the litigation for the defendant. The order was not obtained by him. It was submitted for the plaintiffs that nonetheless a sum of $28,017.06 should be regarded as property of the defendant which was preserved through the plaintiffs' efforts. 55 In paragraph 44, I have set out the passage from the 8th ed of Cordery on Solicitors which states that a solicitor has at common law a "lien" over property preserved for a client. The only authority cited for the passage which is quoted is In Re Sullivan v Pearson; ex parte Morrison (1868) L.R. 4 Qb 153 at 156. That case says nothing about a solicitor having a "lien" in respect of his costs for property preserved. Blackburn J said: " There is no doubt at all that where an attorney has by his labour or his money obtained a judgment for his client, he has a lien upon the proceeds of such judgment, and is entitled to have its proceeds passed through his hands. " 56 Counsel did not refer to, and my own research has not revealed, any case at common law or equity which could properly be characterised as one where the court recognised a solicitor to be entitled to a lien to secure his costs where the client had successfully resisted a claim on his property. In Atkinson, Solicitors' Liens and Charging Orders, 1905, the author stated at (pp 44-45), "in the Chancery Division a solicitor has a lien on a fund realised, recovered, or protected by his industry; …". But no authority was cited for the last proposition. 57 In Skinner v Sweet (1818) 3 Madd 244; 56 ER 499 a declaration was made that a solicitor had a lien for his taxed costs upon any payment of an annuity to which his client, the executrix of a will, might be entitled after payment of what was due by her to the estate. The Vice-Chancellor had directed that her annuity, as it became due, should be applied in payment of a debt due by her to the estate. The report is very brief. It does not appear for what reason it was held that the solicitor was entitled to a lien. On the face of it, the solicitor's industry produced no result for his client, and it is difficult to support the decision. 58 Most texts, eg Halsbury's Laws of England (4 ed Vol 44 para 236), state the principle as being that: " Apart from statute, a solicitor has at common law a lien which may be actively enforced over a fund or the proceeds from a judgment recovered for the client in the course of litigation or arbitration by the solicitor's exertions …. " 59 This is the rule expounded by Jordan CJ in Ex Parte Patience; Makinson v the Minister. That is to say, the solicitor's right is one in respect of a judgment, an award or a compromise for the payment of money. As Jones v Cassell and Grogan v Orr demonstrate, in an appropriate case, that may extend to a judgment obtained for the sale of property and to the fund realised upon such sale, where the order was obtained by the client and can be regarded as a fruit of the litigation. 60 It is clear enough that if s 39A of the Legal Practitioners' Act 1898 not been repealed, the defendant's interest in the property which had been the subject of a claim made by Ms Rose which had been successfully defended could be regarded as property preserved within the meaning of that section. (Till v Till [1974] QB 558; Foxon v Gascoigne (1874) LR9 Ch. App 654). However, no authority has been cited to show that at common law or in equity a "lien" arises to provide security for the solicitors' costs in defending the claim. 61 In my view, a solicitor does not have a "lien" merely because through his or her instrumentality the client has successfully resisted a claim, even a claim on property. If a defendant is sued for a debt, and successfully resists the claim, it could be said that a solicitor whose efforts have resulted in the successful resistance of the claim has preserved all the client's property to the extent of the claim. But I am aware of no authority which says that a solicitor has a lien over the defendant's property for the amount of the plaintiff's claim. It would be curious if the extent of a solicitor's lien should depend upon the extravagance or the modesty of the claim made by the opposite party against the client. So in this case, it would be odd, if instead of claiming 65% of the Drummoyne property Ms Rose had claimed 85%, the solicitor should have a lien over 25% of the proceeds of sale, rather than 5%. On the other hand, a lien over the proceeds of a judgment or order or a compromise of a claim, is limited by the success for the client which has been quantified objectively by the judgment, order or compromise. 62 There is some force in the submission of counsel for the plaintiffs that there is no logical reason for not allowing a solicitor a lien over property preserved by his efforts, just as he is entitled to a lien over money recovered for a client. In each case the solicitor would be preferred to other unsecured creditors of the client, but if the solicitor is entitled to that preference for moneys recovered, there is equal reason for him to be entitled to it for property preserved. There is a public policy ground for solicitors having such a preference, as otherwise meritorious claims or defences might not be maintained. However, the "fruits of the litigation lien" is akin to the maritime doctrine of salvage, in that it looks to the recovery of "fruit" above other factors. (Read v Dupper). Nor, for the reasons in para 61, is the corollary between a lien on property recovered and a lien on property preserved, complete. In any case, logic is not the determining factor. It would be logical for the lien to apply to the recovery of real or personal property other than money. That is not the law. The position was corrected by statute, but the statute has since been repealed. Having regard to the repeal of s 39A of the Legal Practitioners Act 1898, there is no scope for the expansion of the lien on policy grounds. In any event, it may be doubted that on policy grounds the court should prefer the position of a solicitor to unsecured creditors generally. (Pringle v Gloag (1879) 10 Ch D 676 at 680). 63 To allow the plaintiffs' claim to a particular lien would be to expand the reach of the common law right to an area formerly covered by statute, where the statute has been repealed because Parliament thought that the rights conferred on solicitors were against public policy. In my view, the plaintiffs are not entitled to a particular lien, or right in the nature of a lien, in respect of the defendant's share of the proceeds of sale of the Drummoyne property, nor in respect of so much of the proceeds of sale of the Drummoyne property as reflect the defendant's successful resistance to Ms Rose's claim. 64 Accordingly, I make the following orders:

2. The plaintiffs pay the defendant's costs, including reserved costs.

3. The orders made by Campbell J on 10 September, 2004 be dissolved.

4. Refer any enquiry as to damages pursuant to the plaintiffs' undertaking as to damages to an Associate Judge;

5. Direct that if the defendant wishes to enforce the plaintiffs' undertaking as to damages, he file and serve a notice of motion and an affidavit or affidavits in support thereof within 28 days.

08/07/2005 - Correction to date of publishing on internet from 06/07/05 to 08/07/05 - Paragraph(s) 0

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